What is the divorce bill?

Britain’s departure will leave a big hole in the European Union’s finances, and the EU wants a settlement to ensure that all the financial promises the UK made during its period as a member state are kept, even if the UK ends up covering payments due long after it exits the bloc. It’s known by officials as the reste à liquider, the money yet to be paid.

Brussels wants to minimise its losses, or at least put off for as long as possible the question of whether it asks richer countries to pay more into the budget or reduces spending in poorer countries.

A large chunk of the money being asked for by the European commission was pledged by David Cameron, when he was prime minister, to the long-term EU budget for the period of 2014 to 2020.

But the EU, with the UK as a member, has also agreed to pay for programmes that will be implemented in the years 2019 to 2025 and possibly beyond, including road, rail and investment projects.

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Brussels further wants the UK to pay up to cover the costs of pension promises to officials and MEPs, and other long-term EU liabilities. If the EU’s loans go wrong, for example, the European commission wants the UK to play its part in covering the losses. These are known as contingent liabilities.

How much does the EU want?

The European commission’s Brexit taskforce has refused to put a figure on it. Instead it wants to offer up a calculation for the UK to agree to, and then it will present the bill at the end of the talks.

In part, this is because it is impossible to know what the UK’s divorce bill will be until the EU knows what the relationship looks likes after 2019: if the UK seeks to stay as a paying member within some programmes, for example, that would reduce the bill.

Some commission briefings have pointed to an estimated gross bill of about €100bn, including:

€86.4bn to honour commitments the UK made as a member state, including about €20bn to cover 2019/2020, the last year of the seven-year budget to which the UK was a willing signatory.

€11.5bn of contingent liabilities, in case organisations or states, such as Ireland or Ukraine, fail to repay their loans.

€1.7bn in development funding pledges to help countries in Africa, the Caribbean and the Pacific.

The EU doesn’t necessarily want all the money in one sum, however. It is open to regular payments over a period of years.

Moreover, regardless of the precise figure for the gross bill, various factors will bring the net bill down (see below).

What is the UK’s response?

Theresa May has said she recognises that the UK has responsibilities, though she has pushed back against “some of the figures” being bandied about.

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During a tetchy Downing Street dinner, David Davis is said to have protested to the EU’s chief negotiator, Michel Barnier, and the European commission president, Jean-Claude Juncker, that there was nothing in the treaties that obliges the UK to “pay a penny” after it leaves.

That position has been endorsed by a committee of the House of Lords. The peers stressed, however, that if the government wants goodwill from EU countries and a deal on access to European markets, an agreement on the budget would be crucial.

“Even though we consider that the UK will not be legally obliged to pay into the EU budget after Brexit, the issue will be a prominent factor in withdrawal negotiations,” the committee said. “The government will have to set the financial and political costs of making such payments against potential gains from other elements of the negotiations.”

Where is the wriggle room in the negotiations?

The EU has so far insisted that the UK cannot offset its share of European Union assets, such as buildings, or indeed the commission’s generous wine cellar, from the bill. However, there are cracks appearing in the united front and, privately, European commission officials admit that member states may be being a bit unreasonable.

The Belgian MEP Philippe Lamberts, leader of the Greens in the European parliament, spoke for many last month when he said: “Obviously, if the UK has to shoulder its entire state of liabilities it must enjoy the benefits of its share of the assets and that will of course be offset against the liabilities to be paid. It’s a straightforward accounting principle and I think the Europeans are making themselves a laughing stock by failing to recognise that.”

There is also some planned spending that could be easily dialled down to reduce the bill. It is claimed that the EU would accept €64bn in gross terms, though officials say there has been no agreement on that. Over the years to come, Britain would receive its share of EU spending and repaid EU loans, potentially bringing the net bill closer to €40bn.

Will an agreement be struck?

This is one of the priority issues that the European commission has insisted there must be “sufficient progress” on before it will talk about a future relationship with the UK. A strong and stable British government may have been able to persuade a majority of MPs to accept a big payment, though even then the prime minister would have probably sought to mystify the whole thing with some creative accountancy.

However, May will need the help of Labour MPs now if she is to get parliament to support the payment of a hefty bill. It would appear more likely that Jeremy Corbyn would seek to bring the government down than offer his support to the Tories.

It has long been thought in Brussels that money could be the issue that unravels the talks, and recent developments are unlikely to offer any reassurance to the pessimists. The EU wants to see some willing from the British by October.